TESTIMONY OF THE HONORABLE STENY H. HOYER
ON PROPOSALS TO IMPROVE OPERATIONS OF
THE INTERNAL REVENUE SERVICE
BEFORE THE COMMITTEE ON WAYS AND MEANS SEPTEMBER 16, 1997

Mr. Chairman, Mr. Rangel, thank you for the opportunity to testify on proposals to restructure the Internal Revenue Service and improve its operations.

I want to begin by commending Senator Kerrey, Congressman Portman, and other Members of the National Commission on Restructuring the Internal Revenue Service. Their June report summarized many of the issues and problems that have hampered IRS operations in recent years. Their recommendations, which form the basis of H.R. 2292, include many good ideas that the Congress should adopt.

I have joined Mr. Rangel, Mr. Coyne, Mr. Waxman, and Mr. Matsui in introducing legislation, H.R. 2428, which includes many of the Commission's proposals.

The Internal Revenue Service has been rightly criticized in recent years for its failure to manage its operations well. Particular focus has been directed at the attempt to modernize its information systems. Until very recently, that effort had been severely criticized by the General Accounting Office. Furthermore, for the first time in the fifteen years I have been reviewing IRS budgets, a Secretary of the Treasury and his Deputy are giving personal attention to IRS management issues. It is making a difference.

However, as the Commission points out, Congress' failure to have consistent policies regarding funding, its frequent changes of the tax code, and its attempt to micromanage the IRS have all undermined the ability of the IRS to manage efficiently in the long or short term.

In Fiscal 1995, we started a major Compliance Initiative to collect overdue revenues. Despite the fact that it collected far more than anticipated, Congress abruptly canceled the effort in Fiscal 1996.

Congress is also the perpetrator of budget problems at the agency. In June of 1996, Chairman Archer and Chairman Johnson signed a ten page letter detailing problems with IRS funding in the Fiscal 1997 Treasury-Postal Service-General Government Appropriations measure. The attacks on the agency's budget, while partially restored in Conference, hurt morale and distracted managers from the task at hand.

The Commission wisely recommended that "Congress provide the IRS certainty in its operational budget in the near future" and called for "greater stability" with funding levels. Our bill addresses those concerns by calling for stable budgets and, when appropriate, multi-year budgets.

As I noted, there are similarities in the two proposals for improvements. Both bills before the Committee strengthen employee performance management systems. Both bills provide flexibility for recruiting and managing employees at all levels of this critical organization.

Both sets of proposals promote electronic filing which shows great promise for lowering costs and speeding refunds to taxpayers. And both bills set a fixed five-year term for Commissioner to enhance the stability of IRS leadership.

The central, critical, and compelling difference between the two bills is the issue of governance. This difference may be a profoundly philosophical one on how best to protect and promote the public interest. I believe very strongly that the IRS, more perhaps than any other government office, must be governed and managed by those unconflicted by private interests and responsibilities.

Donald Kettl, Director of the Brookings Center for Public Management, referred to the Commission's proposal for governance as "fundamentally flawed." He stated, as well, that it was "an unwise, unaccountable and probably unconstitutional transfer of public authority."

Mike McNamee of Business Week called the proposal "one truly bad idea." And Gerald Seib of the Wall Street Journal said that in this instance the Commission's good intentions had produced a bad idea.

I am very strongly opposed to H.R. 2292's unprecedented proposal to turn day-to-day management of the IRS over to an independent group. While there is no doubt a role for private sector advice and expertise, what the IRS needs is more accountability, not less. H.R. 2292 would place management in the hands of people who, however well-meaning, are loyal and accountable to the firms and businesses that employ them.

While everyone has a joke about a tax collector, the vast majority of Americans believe that the IRS will protect the confidentiality of their very private information and enforce laws evenly and fairly. Directors tied to private interests could easily undermine public confidence in the agency -- and dramatically decrease voluntary tax compliance.

I know that Secretary Rubin will review in far greater detail the serious problems with the H.R. 2292. I hope that Members of this Committee will recognize that H.R. 2428 meets the spirit of the Restructuring Commission without the fatal flaws of delegating a central and sensitive responsibility to a private sector board.

I want to close by noting that, far too often, critics of the Tax Code go after employees of the Internal Revenue Service. Federal employees are easy targets for those who dislike the laws we pass here in the Congress. Nowhere is this more apparent than at the IRS and it should stop.

The reality is quite different. The Commission's final report said interviews with IRS employees gave "an overall impression of competent, hardworking people who want to deliver a high quality product to the American taxpayer."

Instead of denigrating these civil servants, we should provide adequate training and reward those employees who are giving a 110 percent effort. There are a lot of dedicated men and women at the agency who are working hard to ensure that our voluntary tax compliance rate remains the highest in the world.

Our efforts to reform the IRS can and should be done in a positive way which will encourage IRS personnel to implement them for the benefit of our citizens, our employees, and our country.

Mr. Chairman, our bill is real reform that builds upon the progress started by Secretary Rubin. By adopting H.R. 2428, the Congress can ensure that we enter the 21st Century with an IRS that is customer-friendly, technologically-advanced, and governed "by the people, for the people."

I urge support for the Rangel-Coyne-Hoyer-Waxman-Matsui proposal and I look forward to working with the Committee to craft a proposal that the Congress and the President can support.